Senate Bill No. 294
(By Senators Grubb, Anderson, Bowman, Deem and Schoonover)
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[Introduced February 2, 1996; referred to the Committee on
Interstate Cooperation; and then to the Committee on the
Judiciary.]
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A BILL to amend and reenact section two, article six, chapter
forty-four of the code of West Virginia, one thousand nine
hundred thirty-one, as amended; and to further amend said
chapter by adding thereto a new article, designated article
six-b, all relating to the uniform prudent investor act;
changing the standard by which trustees invest funds;
establishing the prudent investor rule; setting forth
standards of care and duties of trustees; when diversification
authorized; permissible costs; determination of compliance
with prudent investor rule; application and construction;
short title; severability; and effective date.
Be it enacted by the Legislature of West Virginia:
That section two, article six, chapter forty-four of the code
of West Virginia, one thousand nine hundred thirty-one, as amended,
be amended and reenacted; and that said chapter be further amended
by adding thereto a new article, designated article six-b, all to
read as follows:
ARTICLE 6. INVESTMENTS BY FIDUCIARIES.
§44-6-2. In what securities fiduciaries may invest trust funds.
Any executor, administrator, guardian, curator, committee,
trustee or other fiduciary whose duty it may be to loan or invest
money entrusted to him as such, may, without any order of any
court, invest the same or any part thereof in any of the following
securities, and without liability for any loss resulting from
investments therein: Provided, That, except as otherwise provided
in article six-b of this chapter, such fiduciary shall exercise the
judgment and care under the circumstances then prevailing which men
of prudence, discretion and intelligence exercise in the management
of their own affairs, not in regard to speculation, but in regard
to the permanent disposition of their funds, considering the
probable income as well as the probable safety of their capital:
(a) In bonds or interest-bearing notes or obligations of the
United States, or those for which the faith of the United States is
distinctly pledged to provide for the payment of the principal and
interest thereof, including, but not by way of limitation, bonds or
debentures issued under the "Federal Farm Loan Act", debentures
issued by "Banks for Cooperatives" under the "Farm Credit Act of
One Thousand Nine Hundred Thirty-Three", as amended, debentures
issued by the federal national mortgage association, securities issued by the federal home loan bank system; and in bonds,
interest-bearing notes and obligations issued, guaranteed or
assumed by the "International Bank for Reconstruction and
Development" or by the "Inter-American Development Bank" or by the
"Asian Development Bank" or by the "African Development Bank";
(b) In bonds or interest-bearing notes or obligations of this
state;
(c) In bonds of any state of the United States which has not
within ten years previous to the making of such investment
defaulted in the payment of any part of either principal or
interest on any of its bonds issued by authority of the Legislature
of such state;
(d) In the bonds or interest-bearing notes or obligations of
any county, district, school district or independent school
district, municipality or any other political division of this
state that have been issued pursuant to the authority of any law of
this state, since the ninth day of May, one thousand nine hundred
seventeen;
(e) In bonds and negotiable notes secured by first mortgage or
first trust deed upon improved real estate where the amount secured
by such mortgage or trust deed shall not at the time of making the
same exceed eighty percent of the assessed value, or sixty-six and two-thirds percent of the appraised value as determined by wholly
disinterested and independent appraisers, whichever value shall be
the higher, of the real estate covered by such mortgage or trust
deed, and when such mortgage or trust deed is accompanied by a
satisfactory abstract of title, certificate of title or title
insurance policy, showing good title in the mortgagor when making
such mortgage or trust deed, and by a fire insurance policy in an
old line company with loss, if any, payable to the mortgagee or
trustee as his interest may appear: Provided, That the rate of
interest upon the above enumerated securities in this subdivision,
in which such investments may be made, shall not be less than three
and one-half percent per annum nor greater than the maximum rate of
interest which such bonds or negotiable notes may bear under
applicable law: Provided, however, That the provisions herein
establishing a minimum rate of interest shall not apply to
investments in force as of the effective date of this section;
(f) In savings accounts and time deposits of bank or trust
companies to the extent that such deposits are insured by the
federal deposit insurance corporation, or by any other similar
federal instrumentality that may be hereafter created, provided
there shall be such an instrumentality in existence and available
for the purpose, or by bonds of solvent surety companies: Provided, That the rate of interest upon such savings accounts or
time deposits shall not be less than the rate paid other depositors
in such bank or trust company;
(g) In shares of state building and loan associations, or
federal savings and loan associations, to the extent that such
shares are insured by the federal savings and loan insurance
corporation, or by any other similar federal instrumentality that
may be hereafter created: Provided, That there shall be such an
instrumentality in existence and available for the purpose, or by
bonds of solvent surety companies: Provided, however, That the
dividend rate upon such shares shall not be less than the rate paid
to other shareholders in such associations; and
(h) In other securities of corporations organized and existing
under the laws of the United States, or of the District of Columbia
or any state of the United States, including, but not by way of
limitation, bonds, debentures, notes, equipment trust obligations
or other evidences of indebtedness and shares of common and
preferred stocks of such corporations and securities of any open
end or closed end management type investment company or investment
trust registered under the "Federal Investment Company Act" of one
thousand nine hundred forty, as from time to time amended, which
men of prudence, discretion and intelligence acquire or retain for their own account, provided, and upon conditions, however, that:
(1) No investment shall be made pursuant to the provisions of
this subdivision which, at the time such investment shall be made,
will cause the aggregate market value thereof to exceed fifty
percent of the aggregate market value at that time of all of the
property of the fund held by such fiduciary. Notwithstanding the
aforesaid percentage limitation the cash proceeds of the sale of
securities received or purchased by a fiduciary and made eligible
by this subdivision may be reinvested in any securities of the type
described in this subdivision;
(2) No bonds, debentures, notes, equipment trust obligations
or other evidence of indebtedness of such corporations shall be
purchased under authority of this subdivision unless such
obligations, if other than issues of a common carrier subject to
the provisions of section twenty-a of the "Interstate Commerce
Act", as amended, shall be obligations issued, guaranteed or
assumed by corporations which have any securities currently
registered with the securities and exchange commission; and
(3) No common or preferred stocks, other than bank and
insurance company stocks, shall be purchased under authority of
this subdivision unless currently fully listed and registered upon
an exchange registered with the securities and exchange commission as a national securities exchange. No sale or other liquidation of
any investment shall be required solely because of any change in
the relative market value of those investments made eligible by
this subdivision and those made eligible by the preceding
subdivisions of this section. In determining the aggregate market
value of the property of a fund and the percentage of a fund to be
invested under the provisions of this subdivision, a fiduciary may
rely upon published market quotations as to those investments for
which such quotations are available, and upon such valuations of
other investments as in the fiduciary's best judgment seem fair and
reasonable according to available information.
Trust funds received by executors, administrators, guardians,
curators, committees, trustees and other fiduciaries may be kept
invested in the securities originally received by them, or if the
trust funds originally received were stock or securities of a bank,
in shares of stock or other securities (and securities received as
distributions in respect thereof) of a holding company subject to
the federal Bank Holding Company Act of 1956, as amended, received
upon conversion of, or in exchange for, shares of stock or other
securities of such bank; unless otherwise ordered by a court having
jurisdiction of the matter, as hereinafter provided, or unless the
instrument under which the trust was created shall direct that a change of investment be made, and any such fiduciary shall not be
liable for any loss that may occur by depreciation of such
securities.
This section shall not apply where the instrument creating the
trust, or the last will and testament of any testator or any court
having jurisdiction of the matter, specially directs in what
securities the trust funds shall be invested, and every such court
is hereby given power specially to direct by order or orders, from
time to time, additional securities in which trust funds may be
invested, and any investment thereof made in accordance with any
such special direction shall be legal, and no executor,
administrator, guardian, curator, committee, trustee or other
fiduciary shall be held for any loss resulting in any such case.
ARTICLE 6B. UNIFORM PRUDENT INVESTOR ACT.
§44-6B-1. Prudent investor rule.
(a) Notwithstanding the provisions of section two, article six
of this chapter, and except as otherwise provided in subsection (b)
of this section, a trustee who invests and manages trust assets
owes a duty to the beneficiaries of the trust to comply with the
prudent investor rule set forth in this article.
(b) The prudent investor rule, a default rule, may be
expanded, restricted, eliminated or otherwise altered by the provisions of a trust. A trustee is not liable to a beneficiary to
the extent that the trustee acted in reasonable reliance on the
provisions of the trust.
§44-6B-2. Standard of care; portfolio strategy; risk and return
objectives.
(a) A trustee shall invest and manage trust assets as a
prudent investor would, by considering the purposes, terms,
distribution requirements and other circumstances of the trust. In
satisfying this standard, the trustee shall exercise reasonable
care, skill and caution.
(b) A trustee's investment and management decisions respecting
individual assets must be evaluated not in isolation but in the
context of the trust portfolio as a whole and as a part of an
overall investment strategy having risk and return objectives
reasonably suited to the trust.
(c) Among circumstances that a trustee shall consider in
investing and managing trust assets are such of the following as
are relevant to the trust or its beneficiaries:
(1) General economic conditions;
(2) The possible effect of inflation or deflation;
(3) The expected tax consequences of investment decisions or
strategies;
(4) The role that each investment or course of action plays
within the overall trust portfolio, which may include financial
assets, interests in closely held enterprises, tangible and
intangible personal property and real property;
(5) The expected total return from income and the appreciation
of capital;
(6) Other resources of the beneficiaries;
(7) Needs for liquidity, regularity of income and preservation
or appreciation of capital; and
(8) An asset's special relationship or special value, if any,
to the purposes of the trust or to one or more of the
beneficiaries.
(d) A trustee shall make a reasonable effort to verify facts
relevant to the investment and management of trust assets.
(e) A trustee may invest in any kind of property or type of
investment consistent with the standards of this article.
(f) A trustee who has special skills or expertise, or is named
trustee in reliance upon the trustee's representation that the
trustee has special skills or expertise, has a duty to use those
special skills or expertise.
§44-6B-3. Diversification.
A trustee shall diversify the investments of the trust unless the trustee reasonably determines that, because of special
circumstances, the purposes of the trust are better served without
diversifying.
§44-6B-4. Duties at inception of trusteeship.
Within a reasonable time after accepting a trusteeship or
receiving trust assets, a trustee shall review the trust assets and
make and implement decisions concerning the retention and
disposition of assets, in order to bring the trust portfolio into
compliance with the purposes, terms, distribution requirements and
other circumstances of the trust, and with the requirements of this
article.
§44-6B-5. Loyalty.
A trustee shall invest and manage the trust assets solely in
the interest of the beneficiaries.
§44-6B-6. Impartiality.
If a trust has two or more beneficiaries, the trustee shall
act impartially in investing and managing the trust assets, taking
into account any differing interests of the beneficiaries.
§44-6B-7. Investment costs.
In investing and managing trust assets, a trustee may only
incur costs that are appropriate and reasonable in relation to the
assets, the purposes of the trust and the skills of the trustee.
§44-6B-8. Reviewing compliance.
Compliance with the prudent investor rule is determined in
light of the facts and circumstances existing at the time of a
trustee's decision or action and not by hindsight.
§44-6B-9. Delegation of investment and management functions.
(a) A trustee may delegate investment and management functions
that a prudent trustee of comparable skills could properly delegate
under the circumstances. The trustee shall exercise reasonable
care, skill and caution in:
(1) Selecting an agent;
(2) Establishing the scope and terms of the delegation,
consistent with the purposes and terms of the trust; and
(3) Periodically reviewing the agent's actions in order to
monitor the agent's performance and compliance with the terms of
the delegation.
(b) In performing a delegated function, an agent owes a duty
to the trust to exercise reasonable care to comply with the terms
of the delegation.
(c) A trustee who complies with the requirements of subsection
(a) of this section is not liable to the beneficiaries or to the
trust for the decisions or actions of the agent to whom the
function was delegated.
(d) By accepting the delegation of a trust function from the
trustee of a trust that is subject to the law of this state, an
agent submits to the jurisdiction of the courts of this state.
§44-6B-11. Application to existing trusts.
This article applies to trusts existing on and created after
its effective date. As applied to trusts existing on its effective
date, this article governs only decisions or actions occurring
after that date.
§44-6B-12. Uniformity of application and construction.
This article shall be applied and construed to effectuate its
general purpose to make uniform the law with respect to the subject
of this article among the states enacting it.
§44-6B-13. Short title.
This article may be cited as the "West Virginia Uniform
Prudent Investor Act".
§44-6B-14. Severability.
If any provision of this article or its application to any
person or circumstance is held invalid, the invalidity does not
affect other provisions or applications of this article which can
be given effect without the invalid provision or application, and
to this end the provisions of this article are severable.
§44-6B-15. Effective date.
This article takes effect on the first day of July, one
thousand nine hundred ninety-six.
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(NOTE: This bill is recommended by the Commission on
Interstate Cooperation for introduction this session.
Strike-throughs indicate language that would be stricken from
the present law, and underscoring indicates new language that would
be added.
Article 6B is new; therefore, strike-throughs and underscoring
have been omitted.)